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Sunday, February 01, 2015

On the Merger and Acquisition (M&A) front the Nest Labs sale to Google for $3.2 billion in early January of 2014 fired the starting gun for a highly active year in the Internet of Things (IoT) M&A space especially, within the consumer-oriented Smart Home connected space.

Key Takeaways

G2Speaks believes there are 3 key IoT Smart Home takeaways emerging from all this M&A space activity:

Devices are still king at this stage of the game.

Smart, connected thermostats, cameras, motion detectors and more are all “physical things” which are being valued over platforms, hubs and data. Said another way, the greatest platform without a trick physical device, garners little NEST-Billion-like acquisition interest.

With that said, complete turnkey platforms are likely to be the next M&A target to light up as new and existing players decide they want to expeditiously enter the market with fully developed and ready to go platform solutions.

As a precursor to increasing M&A activity around IoT Smart Home hubs, Google’s purchase of Revolv may have gotten things started. Are other platforms such as Electric Imp or Zonoff (the guys behind Staples connected home and wearable platform) next in line?

Secondly, all this M&A activity tells us that standards are still very fluid and thus not a showstopper to deal making. Deals were done this year regardless of Wi-Fi, Z-Wave, ZigBee, or any “you-name-it” protocol… it simply didn’t matter. Clearly, no standard has yet emerged to dominate in the consumer Smart Home market; at least not as driven by M&A activity.At the same time, while it may be tempting to take a standards agnostic stance, the inherent inefficiency of proprietary-ness will make such a path a tough one to follow; especially as standards will ultimately converge much further.

Thirdly, the big Consumer Electronics manufacturers (Samsung, LG, etc.) have been relatively quiet in the IoT Smart Home space to date. While Samsung has made some recent acquisitive moves with their Smart Things deal, most of the manufacturers are too busy trying to develop their own capabilities internally or they have yet to even make an entrance move into the Smart Home space.

Up Next

The above three takeaways suggest to G2Speaks that the following trends are likely to emerge as next steps among all players in the overall IoT Smart Home industry:

More horizontal transactions. So far it’s been large buyouts by big strategic partners such as Google buying Nest and Dropcam. Going forward, the next round of M&A action will likely be deals between peers or deals where players will add capabilities that round out existing product offerings.

Standards will also begin to converge at an accelerated rate resulting in a smaller number of “standard makers” being accepted in devices and platforms while the remaining wannabe standard makers will be acquired at low-value or even distress pricing. You definitely don’t want to be on the wrong side of the standards convergence storm.

Follow carefully the activity of the big Consumer Electronics manufacturers beyond the standards world. As powerhouse consumer marketers, they know they need to embrace the uptick in connected IoT Smart Home automation and get real product lineups to market. By Holiday Season 2015, the option of taking a “wait and see” approach to the IoT Smart Home market will expire forcing more clarity among the many standards contenders and the marketer’s response.

Did you note that LG and Google partnered up recently? They have agreed to share current and future IP in the Smartphone and larger “smart” space. This is a big one to watch.

Other M&A of Merit

While the big Q1 2014 M&A move was certainly NEST being bought by Google at $3.2 billion, followed by Q2’s Dropcam acquisition by Google for almost $0.5 billion; there was still another half a billion or so in transactions during the “quiet of summer”.

For instance, Spark Labs (spark.io). These guys are developing a complete open-source operating system for cloud connected things. They had a successful kick starter campaign for about $0.5 million and then quickly raised $5 million more in venture money in July.

Or what aboutWigWag? They raised three quarters of a million on a play that encompasses Wi-Fi, Bluetooth, ZigBee, Z-wave and more. They are trying to solve for all the radio protocols in one turnkey swoop.

And then there is IFTTT(If This, Then That). These folks just closed another $30 million in August on top of the $39 million they had raised previously. By the way they also joined Nest’s (or Google’s) open developer program.

Oh, and don’t forget about the founder of Guitar Hero. He managed to raise $37 million to pursue an as yet unnamed “something” in the Smart Home space.

The Bottom Line

There is a ton of activity in the IoT Smart Home M&A arena and it warrants paying careful attention. Rest assured G2Speaks will remain on point keeping our readers posted.